“The desire is not just to make teams more efficient, it’s to reduce headcount,” he said.

“Companies are cutting costs wherever they can – whether that’s headcount reduction or pushing work out to ALSPs.”

Following these comments, Lawyers Weekly recently asked its audience, via a LinkedIn poll, if they had seen corporations use AI to reduce their headcount in Australia and whether AI tools would drive an increased use of ALSPs.

At the time of closing, the poll results were as follows:

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Fifty-nine per cent of respondents said this was already happening in Australia, while 41 per cent disagreed and said that in-house teams were safe from being replaced by AI.

The LinkedIn poll is, of course, not a scientific study and should not be taken as such. However, it does offer an insight into the mindset of Australian in-house lawyers and their current attitudes towards AI in a broader market context.

AI being used more in-house – but will it replace lawyers?

In-house lawyers have been implementing AI and tech more in recent years – research back in 2023 showed that 60 per cent of legal departments were due to increase their investment in tech moving forward. Last year, a survey from LexisNexis also found that more than 50 per cent of in-house lawyers were using AI – with 78 per cent believing that AI tools will impact the way firms operate and charge clients.

Rather than replacing legal professionals, however, AI is “increasingly viewed” as a tool to “amplify their capabilities”, according to Consilio marketing director and APAC and Middle East head Anita Thompson and LOD Australia managing director Paul Cowling.

“We already know that the role of the in-house lawyer has evolved beyond traditional advisory to strategic enablers and innovation drivers within their organisations. This is precisely why their roles cannot be replaced by AI in the foreseeable future – while those tools can enhance efficiency and handle repeatable tasks, they lack the contextual understanding, commercial judgement, and trusted relationships that in-house counsel bring to the table,” the pair said.

“In-house lawyers have a granular understanding of their organisation’s culture, risk appetite, and long-term goals. This context is critical for providing nuanced, commercially aligned advice that AI cannot replicate. They advise not just on what is legally permissible, but on how to do it in a way that aligns with business priorities. Whether entering new markets, launching products, or navigating regulatory changes, in-house counsel play a critical role in balancing compliance with opportunity.

“From our observations and the many discussions we continuously have with in-house teams, AI isn’t positioned to replace in-house legal roles in Australia, but rather to complement them. This shift will only strengthen their position as trusted advisors and key business partners.”

Emily Coghlan, a partner in the digital legal delivery practice at Herbert Smith Freehills Kramer (HSF Kramer), AI is being used to streamline high-volume and data-intensive tasks, as well as support the delivery of legal services to HSF Kramer’s clients.

“While using AI can create efficiencies, it also opens opportunities to create value in different ways. GenAI, in particular, is changing the way in which legal advice is delivered and implemented, and ultimately, it is another tool in the armoury of efficiency and automation,” she said.

“It is important to stay attuned to the risks presented by the use of GenAI. The use of any AI tool should always be balanced by the need to use it responsibly and ensure the accuracy and reliability of its outputs, so human oversight is still required.”

By automating these aspects of legal work, AI is driving a shift in in-house team structures.

However, Containers for Change QLD senior legal counsel Jessica Carroll noted that the kinds of tasks AI is replacing are how young lawyers learn how to assess risk, apply judgement, and understand the commercial context behind legal decisions.

“As AI takes over more of that work, there’s a real risk that we lose the learning curve. If junior roles are reduced or eliminated, we’re not just cutting payroll – we’re shrinking the pipeline of future senior counsel who understand the business from the ground up.

“In-house lawyers are not just contract reviewers or compliance checkers – we’re embedded business partners. We help shape strategy, guide decision-making and pre-empt legal and reputational risks before they escalate. We work across functions, translate legal nuance into practical advice and align legal positions with commercial and operational goals,” she said.

“In many organisations, in-house lawyers are also deeply involved in governance, risk and compliance, employment law, internal policies, regulatory compliance and alignment and operational delivery. That kind of cross-functional work – built on trusted internal relationships and deep institutional knowledge – can’t be outsourced or automated. AI won’t replace in-house lawyers (at least not yet), but in-house lawyers who use AI might replace those who don’t.”

Utilising AI and legal technology properly may begin to be vital for in-house legal teams as they navigate challenging macroeconomic conditions, geopolitical uncertainty, and heightened regulatory scrutiny. This, according to Ashurst Advance partner and head of advanced solutions Nathan Bellgrove, also comes as legal teams are under increased pressure to deliver results while managing budget constraints.

“While these factors naturally prompt discussions around headcount and where it should be focused, we have not observed any clear trend of in-house legal teams being reduced specifically due to the adoption of AI tools and solutions,” he said.

“However, as AI adoption accelerates, it is inevitable that organisations – including our own – will seek new skill sets and expertise to fully harness the benefits that these technologies offer.”

This comes after 2024 research from ACC Australian and Taylor Root revealed that 11 per cent of teams expected staff reductions in the 12 months up until August this year, with legal departments not escaping difficult market conditions.

Despite potential cuts, LexisNexis head of strategic partnerships Jennifer Bannan said she’s expecting an “evolution rather than a revolution” of in-house legal roles, with AI enabling in-house lawyers to advise their businesses more quickly and with less distraction.

“In Australia, while in-house legal teams are adopting AI and some sources predict a future reduction in the number of in-house legal roles as businesses focus on cost reductions and efficiency gains, we are not yet seeing wholesale headcount reductions or replacement of human legal expertise with AI,” she said.

“Rather, we are witnessing the transformative impact of AI on in-house legal roles with AI as an efficiency driver.”

Future implications of ALSPs on legal departments

ALSPs have an estimated market size of US$28.5 billion – and a recent report showed that more than 50 per cent of corporate law departments rely on ALSPs for services, including flexible resourcing and litigation support.

With AI reshaping legal workflows, ALSPs may play a bigger role in delivering flexible, cost-effective legal support moving forward.

Cowling has also previously predicted that the future of legal services will be more “agile, tech-enabled and cost-conscious”, something especially true as more corporate legal teams shift towards ALSPs for cost-effective solutions and a technology-driven approach.

“There is no doubt AI will see a redefinition of how legal work is done, but not why in-house counsel are essential. The most forward-thinking legal departments will be those that use AI to automate the routine, leverage ALSPs to scale and retain their in-house lawyers to lead the strategic,” he said.

Bannan agreed that AI efficiency gains are changing (and will continue to change) in-house lawyers’ relationship dynamic with external counsel.

“Legal AI is enabling in-house legal departments in Australia to access deep expert knowledge and legal resources and this is impacting the in-house lawyer/external counsel dynamic, with corporate teams no longer relying on their private practice counterparts to do the grunt work of trawling through volumes of documents, preparing first drafts or providing advice on unfamiliar practice areas,” she said.

“Meanwhile, law firms still need to advise their clients, and sign off on matters, often without having done all of the initial research or prep work. ALSPs are less prolific in Australia than the USA; however, we anticipate a trend towards more outsourcing to ALSPs as businesses continue to prioritise cost-savings that can be generated by briefing to a ‘one-stop shop’.”

In July last year, big four firm KPMG closed its commercial law practice, with its remaining legal services folded into other divisions – prompting debates on whether traditional top-tier firms and ALSPs will continue to dominate the Australian legal market.

Top-tier firms like A&O Shearman, Ashurst, and HSF also have their own ALSP divisions.

A&O Shearman’s Peerpoint is the firm’s global flexible resourcing business, Ashurst’s NewLaw division Ashurst Advance experienced a 34 per cent increase in revenue in its first year as a “core division” of the firm, and HSF Kramer launched its alternative legal services (ALT) offering in 2011 before launching its Digital Legal Delivery practice in 2024, after the ALT practice saw a “significant increase” in clientele.

“Digital adaption is presenting businesses with efficiencies and opportunities at pace. Our clients are increasingly looking for solutions that will ease the workload of their in-house legal teams and leverage the opportunities that new technologies present in legal service delivery. Reflecting this need, we are observing continued growth in demand for our digital services,” Coghlan said.

“Our digital team supported 755 clients on almost 1,800 matters in the last financial year alone. Harnessed correctly, there is no doubt that GenAI is providing a boost to ALSPs, making them more attractive to clients.

“Our digital practice has been using AI for over a decade. The integration of GenAI tools is the next evolution of enhancing the capabilities of ALSPs, including our digital practice. We are currently deploying or piloting more than 17 GenAI tools and are continuing to explore, at pace, the opportunities presented by GenAI.”

Similarly, Bellgrove said that more and more Ashurst Advance clients are turning to the division for guidance and support around AI solutions, even more so when “internal resources or budgets are limited”.

“Some have invested in technology but require our expertise and additional infrastructure for the layers of customisation that are inevitably required to develop the workflows needed for comprehensive, end-to-end solutions­­. When it comes to deploying AI at scale for high-volume, lower-complexity legal tasks, there remains a strong appetite for outsourcing,” he said.

“This approach allows in-house legal teams – often comprised of industry specialists with extensive institutional knowledge and networks – to focus their efforts on providing strategic, high-value advice to the business, reinforcing their role as trusted advisors. These attributes of in-house legal specialists will always be incredibly valuable to the businesses they support.”

These flexible models can reduce the need for permanent in-house headcount – allowing organisations to utilise senior expertise without committing to full-time roles.

However, ALSPs shouldn’t “replace” in-house lawyers altogether, argued Carroll. Instead, legal support should be strategically tailored to align with the organisation’s specific needs and level of maturity rather than used as a quick fix for gaps in full-time legal staffing.

“When used well, both AI and ALSPs can strengthen legal service delivery. But the idea that they’re ‘replacing’ in-house teams oversimplifies the value of embedded legal professionals. The future of legal is not about choosing between humans and tech – it’s about smarter, more strategic resourcing,” she added.

“And while much of the conversation has focused on risks to in-house roles, we should also consider the disruption coming for private practice. As AI enhances the capability and efficiency of in-house teams, more legal work will stay internal. The greatest cost savings may not come from reducing in-house headcount – but from cutting back on the eye-watering fees charged by external firms. That’s the shift worth watching.”

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